Sample Marketing Analysis Paper on Visa Inc.

  1. Provide an overview of the corporation to include but not limited to, when and how it was incorporated, by who, the board of directors, specific interest of the corporation, its headquarters, size, regions of operation and strength in the market

Visa is a game-changer when it comes to making payment easier for merchants and customers all over the globe. Visa created a payment platform that has revolutionized the mode of purchases around the globe and made it for cashless payment all over the globe. The story of Visa emanates from Bank of America that launched a credit card program back in Fresno, California back in 1956 through a think tank management forum. This initiative was necessitated by the fact that the American market had been oversaturated by two million credit cards and the Bank of America credit card only shared a small percentage (Stearns, 2011). This had brought about a turmoil of confusion which would result to customers having to carry a bunch of credit cards depending on the merchant they were buying from; this is where the Bank of America noticed the market opportunity to come up with a universally accepted card. This brought about market rivalry from competitors who had also noted the market gap.

However, this did not deter Bank of America standing its ground and metamorphosizing in partnership with other like-minded corporations like National Bank of Commerce to stay afloat in the market. The market wars mainly revolved around licensing the BankAmericard version in the Pacific market. It was not until 1976 when some form of harmonization was reached by BankAmericaCard, Barclaycard, Chargex, Sumitomo Card and other partners agreed that it would be in the best interest for themselves to come up with a single card that is universally accepted (Stearns, 2011).

Before October 2007, Visa comprised of non-stock and separately incorporated companies all under one parent Visa International Service Association. In October 2006, Visa announced of becoming a publicly-traded company under Visa Inc. Visa would later make history for being the largest initial public offering in US history by raising 17.9 billion US dollars in the New York Stock Exchange.

Visa has revolutionized over the years from just merely offering debit, credit and prepaid cards to incorporate modern technology into cashless payment like developing contactless Visa, MVisa and Visa Checkout. Visa is governed by a team of well-established professionals who run the global brand led by Alfred F. Kelly as the chairman and Chief Executive Officer and Lynne Biggar as the Executive Vice President and Chief Marketing Officer.

 

 

  1. Examine the corporation’s financials for the last two years. Calculate the earnings per share and discuss the corporation’s profitability

The earning per share of any publicly-traded company gives a general outlook of the financial performance of the company. The earning per share of a company is derived from taking the company’s quarterly or annual net income and dividing by the number of outstanding shares of stocks. Visa Inc global performance in the last two years in the stocks exchange has been appreciative until the first quarter ending June 30 2020. The share price dropped due to the lockdown of various economies as a result of the global pandemic that hit various parts of the world and consecutively affecting business operations (Beachler, & Shevory, 2014).

Previously the share price was at $4.72 in the twelve months ending June 30 2020, signifying an increase of 0.85% for that year. As of June 30, 2020, Visa Inc. had outstanding share stood at 2,214 million shares, that is the authorized, issued and purchased shares by investors. At the second quarter of 2020, Visa Inc. announced a net income of 3.84 billion dollars which was a 4% increase compared to the prior year’s results. This means that earnings per share were at $1.38 which signifies an increase in year over year performance of the same period last year. This demonstrates that there is a stable investor base at Visa Inc. regardless of the decline in the volume of payments from retailers (Tomak, 2009). This is a positive outlook for the company’s profits moving into the future since it shows a stable stock price regardless of harsh economic conditions.

It would be important to state that for the last three years Vis Inc. has posted gains consecutively due to its large uptake as a preferred global payment platform. Moving forward into 2020, it’s highly unlikely for Visa to maintain these standards owing to the fact that most consumers are locked down and thus limiting their spending capacity (Pride, 2017). The decline in revenues is already foreseeable due to the recent market trends that have seen a drop in revenue growth in the recent quarters from 10% growth in 2020 first quarter to 6.65 in the second quarter of 2020.

 

  1. Estimate what percentage of the corporation’s revenue comes from domestic and international sales and discuss why revenue is strong in the specific region? Discuss if the corporation has a competitive advantage

Domestic net revenues for Visa were on an increase of 7% largely attributed by the increase in great uptake in payment volumes from partnered merchants. The increase was also attributed due to the cross-border trade transactions because most trade activities were not affected prior to March 2020 by the global pandemic. The growth potential of Visa globally is overwhelming and investors are focusing on it in baited breathe. The opportunity is immense as it holds the future of upcoming start-up around the globe at stake as most of them plan on going global in the next three years. The hindrance that is coming along with this futuristic view of expansion has to be the trade regulations put in place by various economies. The fact that various economies have imposed trade regulations has also impacted on Visa’s global expansion since eventually, Visa has to collaborate with individual merchants in those countries.

The key challenge ahead would be trying to tailor a marketing strategy that takes care of the merchant needs. Basically, merchants are looking for a seamless experience during transactions and acceptance of foreign transactions as well as faster and smooth shipping across borders. Taking this into consideration would put Visa Inc. ahead of competition globally (Smith & Krivacek, 2019)

 

  1. Discuss the impact the fluctuating dollar has on its profits for the last twelve months. Use a graph to illustrate the fluctuations against the foreign

                        Visa has for the last two consecutive years continued to increase its revenue share despite the effects of the stronger US dollar and even continues to display better results in 2019. The foreign exchange effects expected to have a toll on most profitable companies have had Visa Inc. projecting a dilute in earnings to cushion itself from the negative foreign currency impact. This goes hand in hand with the expectation of investor as they witnessed a fall in cross-border growth in net revenue. The cross-border earnings are determined by the number of transactions transacted by merchants outside the customer’s home country. Visa however had made a move to cushion itself from these effects by increasing the fees on foreign nations transacting on visa within the region (Hirsh, & Fletcher, 2012). This saw Visa together with rival company Mastercard come under serious criticism from their merchants. This resulted in Visa offering a capitation of fees in a bid to protect itself from regulator fines and avoid any unnecessary investigations from EU authorities.

It would be worthwhile to note that Visa has been feeling the heat from the exchange rates fluctuations and has been using acquisitions and investment gains to stay afloat in the market. This has resulted in constant dollar net earnings regardless of the exchange rates reducing their revenue growth. Through the acquisitions made by Visa Inc, they have managed to increase revenue growth as well as expense growth. Visa has however concentrated on their key business drivers to keep stable which is, the volume of payments and cross-border volumes. However, as there has been a drag in the growth rate projections due to the volatility of currencies as well as the strong dollar which have directly impacted on their international revenues (Dess, 2012). All this have neither impacted on revenue growth as the dollar payments in their largest market the US have remained constantly high. The below chart shows the performance of Visa Inc profits against the fluctuating dollar prices

 

  1. With information taken from the corporation’s financial report (last 2 years), discuss how the corporation manage its exposure to foreign exchange rate risk? Discuss the types of exposures?

            Visa Inc. has continued to post a tremendous volume of growth in revenues in the last two years, hitting the 10% mark in the first quarter of 2020. When we bring the effects of currency volatility and foreign exchange rates adjustments the bet revenue growth hits a high of 13%. This has been made possible by what Visa Chairman states as focusing on key business drivers. Visa has put more focus on bringing more large clients in emerging new markets that are coming on board in the e-commerce industry as well as partnering with fintech startups and trying to curb friction arising from economic readjustments (Smith, & Krivacek, 2019).

Visa has also pushed for the renewal of agreements with some of their largest financial institutions with the inclusion of innovative payments partners in the regions of Europe and South America. They have even gone ahead in partnering with large players in the market like PayPal through their product Venmo credit card which has over 52 million users. In a bid to capture the African market, Visa has partnered with MFS Africa, the largest digital payment hub that will enable more than 180 million customers to distribute their visa payments to the rest of the world. Through such collaborations, Visa will be able to cushion itself from the foreign exchange effects and as well as reduce friction within the financial ecosystem (Visa Inc., 2015).

Visa cross-border revenues were also on the line and Visa through a board agreement decided to repurchase stocks at an average price. Embarking on this repurchase program enables Visa to have more capital disposal to their shareholders therefore refocusing their energy on financial performance and other key business drivers. The e-commerce revenue growth was also in line especially due to the weakening US dollar as compared to the euro and pound. This effect was felt in the European and larger Asian markets and thus the impact brought about by innovative acquisitions kept revenue growth relatively high in the China market (United States, 2013).

 

  1. Discuss the reasons for changes in the stock price for the last 12 months. Finance.yahoo.comcan assist you to find the most current news about your corporation.

Currently, the Visa Inc. stock price stands at a high of $197.50 amid the pandemic effects facing the financial market. It would be true to state that the Visa stock price has been on a tremendous growth since 2010 with mild fluctuations in 2015 but generally on an upward trajectory ever since. The major hit came about in the second quarter of 2020 after the global pandemic of COVID-19 hit the world. This definitely resulted in a lockdown in major economies and consecutively leading to more restrictions on the spending power of most consumers.

The Visa stock price hit rock bottom in March 2020 to a low of $ 141 marking the lowest stock price within the decade. The stock price only started stabilizing in mid-August after most economies accepted that the pandemic is here to stay and consequently started to open up economies. This major hit to the stock price was unprecedented as Visa had focused on its revenue streams through major collaboration (Schultz, & Samatadol, 2017).

A look at the last 18 months whereby Visa had partnered with large players within the e-commerce industry for tokenization of Visa payments. Players like Netflix, Amazon, CyberSource, Stripe and PayPal and these forms of collaborations and acquisitions would have enabled the players stock price to remain afloat amid currency volatiles (Stearns, 2011). At the moment, Visa is projecting major growth percentages moving into the last quarter of 2020 with the strategies laid in place hopefully go through.

 

  1. Does the performance of your corporation’s stock affect the performance S&P 500 index? Explain why or why not?

Basically, the S&P 500 index is a tool that measures the market capitalization-weighted index of the 500 largest US publicly traded companies. The index generally takes an overview of the risks and returns involved when an investor decides to invest in that particular company’s stocks. The index is greatly affected by the available number of shares available for trading at the stock exchange and is ranked as the best measure for large-cap US equities (Cao, Gustafson & Velthuis, 2019). This is to mean that a company’s market capitalization will be affected either positively or negatively depending on the number of shares to be publicly traded.

Since the Standard & Poor 500 index is weighted by market cap, the large stock players have much influence on the long-term performance of the index. For investors, they need to focus on the 10 top players in the S&P 500 index in order what factors are driving the broader market. Visa Inc. certainly is a big player in the market and has a premium rating index e 1.2% at number 9 according to data released by S&P Dow Jones Indices as at August 31, 2020.

The S&P 500 index is mainly dominated by Technology companies followed by health care and industrials, Visa Inc. is a fintech company and has a huge influence on the index. Visa Inc. is the growth of stocks road as focused in the last quarter since it is among the tech giants that are looking promising in recovering from the global pandemic effects. The reason behind is that even with the lockdown happening all over the world, technology companies still and leverage in the market compared to other industrial sectors (Cao, Gustafson & Velthuis, 2019). People hastened the adoption of technology in order to survive the pandemic thus Visa was not left behind due to the behavioural change. This translates to the fact that companies like Visa will lead to growth in the stock of the S&P 500 index regardless of a decline in the value of shares for the better part of 2020.

 

  1. If you were the CEO of the corporation what would be your recommendations or what would you do differently to improve the stock price?

 

Currently, the CEO at Visa Inc. is doing a marvelous job for the company by embarking on more acquisitions aimed at innovation within the fintech industry. This definitely is a major move in ensuring that the stock prices fluctuations are well controlled and in the long run attracting more investors into the game.

Given the opportunity to be CEO at Visa Inc. I would definitely look at the acquisition game plan differently. I would place my focus on e-commerce startup that are dealing with products that are shaping the world markets moving in the future. Keep among the industries are startups focusing on socio-economic development in sub-Sahara Africa as well as companies promoting energy efficiency. Such economic players expect a rise in market valuation and are expected to give access to billions of merchants who will enable Visa Inc. to grow its revenue share (Dess, 2012).

Additionally, some more focus needs to be placed into European and the larger Asian markets that have big industry players competing with Visa. Market regions like China and Hong Kong are definitely giving Visa Inc. a hard time in terms of market penetration and dominance. A key strategy that would be used in these territories would be patterning with hotels and restaurants that have huge traffic, especially during the holiday season. Such facilities that attract quite a number of reasonable clienteles would be a gateway into these markets since the spending capacity of tourist in those regions is expected to be high (Beachler & Shevory 2014).

 

  1. Use the Gordon Growth Model to calculate the true value of the stock. Comment on the results

            Players in the stock’s investment field are always devising new strategies to evaluate the worthwhileness of different stock before making any moves into buying or selling stocks. The risk involved while trading in stocks is quite high and calculated moves need to be inculcated before making a move. This is where Gordon’s Growth Model comes in while evaluating the real market value of a share versus the speculations involved (Gordon, 2009).

Gordon’s Growth Model generally uses dividend growth and the rate of return to determine the value of a company’s stock. The growth model makes assumptions that the company’s business model is stable and that growth is constant. The stock price is equal to the expected value of the dividend divided by the difference between the investor’s rate of return minus the constant growth rate of return.

 

Where:

P is the current stock price

g is the constant growth rate expected for dividends = 19.8%

r is the required rate of return for equity investors = 40.65%

D1 is the expected divided by share one year from now = 5.87%

=28.15 $

 

This means that the model put the intrinsic value of Visa Inc. at 28.25$ which is $4 more than the current market value of the stock (Gordon, 2009). The basic interpretation of this is that the stock price for Visa Inc has been undervalued and is definitely a buy for any serious investors looking to invest in a fintech company.

                                               

  1. Would you purchase the stock and why/why not?

Visa Inc. stocks are a definitely buy for any potential investor looking at a fintech company with ambition and potential to standard the world economic wave. The growth trend of Visa Inc. stocks in the last decade has been on the increasing end due to the strategy employed by the management of focusing on their key business drivers. As CEO Alfred Kelly stated that the key business driver for Visa Inc. is focused on increasing payment volumes, more cross-border transactions and penetration as well as transactions processed per single day. Sticking by this strategy, Visa stocks are expected to grow in the foreseeable future thus making them attractive for long term investors (Riggs & Bonk, 2008).

Recapping again on the recent shockwave caused by the global pandemic in the financial market. Visa Inc. stocks remained afloat despite the surge in earnings per share, the company was able to bounce back into the market within a short period of time. This was as a result of the response by the US authorities regarding the lockdown guidelines, and again the US happens to be Visa’s largest market in transactions volumes (Tomak, 2009). Such fluctuations of stock prices for any company are bound to bring in the attention of any investor.

 

 

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